+++ BMW ’s profit margins on cars fell in the third-quarter, hit by spending on more engineering staff and new electric car technologies against a backdrop of stiffer price competition in the U.S. luxury car market. BMW and its rivals are struggling to maintain profit levels amid heavy investment in new technology including electric and self-driving cars, cleaner diesel engines as well as new ride-hailing business models to rival Uber. The Munich-based carmaker reiterated its full-year target of a slight increase in group pretax profit but warned that margins would remain under pressure due to continued investment. “Costs generally rise towards the end of the year so we expect this to have a dampening effect on earnings”, Chief Financial Officer Friedrich Eichiner told analysts on a call on Friday to discuss BMW’s results. “Capital expenditure will also be higher in the last three months of the year, mainly due to the start of production and ramp-up of the new 5 Series”, Eichiner said, adding that research and development spending would remain high into 2017. While sales of BMW, Mini and Rolls-Royce cars rose 7.1 percent in the quarter ending in September, the return on sales at BMW’s core automotive division fell to 8.5 percent from 9.1 percent a year earlier. By contrast, archrival Mercedes-Benz Cars’ third-quarter operating margin was 11.4 percent while Audi’s was 6.9 percent for the first nine months of the year. BMW said the dip in automotive profits was mainly attributable to higher personnel expenses as staff numbers rose 3.6 percent, along with changes in the mix of vehicle models sold. Customers are migrating to less profitable smaller SUVs while BMW’s popular 5-series is at the end of its lifecycle and competing with a brand new Mercedes-Benz E-class. BMW said sales in the United States, a market where sales of highly profitable large SUVs has been strong, had fallen 3.6 percent in the quarter. “Pricing remains a challenge in North America in particular”, Eichiner told analysts. The more competitive sales environment has already forced German premium auto maker Audi to cut its sales forecast for the year and to warn that its operating margin would remain below its 8 to 10 percent target range this year. BMW said it plans to keep the return on sales at its automotive division between 8 and 10 percent, a goal it has achieved for the last 26 quarters in a row. At a group level, BMW said third-quarter earnings before interest and taxes (EBIT) were 2.38 billion euros ($2.6 billion), in line with a 2.37 billion consensus forecast in a Reuters poll and little changed from 2.35 billion last year. The group benefited from a profit boost from its financial services business and a gain from derivatives hedging. +++

+++ It’s no secret that the JEEP brand in Australia has had issues with quality control that have affected the ownership experience, especially for Grand Cherokee owners. It’s a fact that hasn’t been lost on head office, especially considering many Grand Cherokee buyers see the big SUV as a premium product. Recalls are no bad thing, when proactive. It is the manufacturer getting on the front foot with a commitment to identify and rectify any issues with its product. Regardless, the perception of the Jeep brand has taken a hit, lately, and head office is working hard to rectify that. I posed the question at the launch of the Grand Cherokee Trailhawk: What is Fiat Chrysler Automobiles doing to combat and eradicate those issues? “In short, we’re going to continue to improve the quality”, Collin Shaw, global Jeep marketing and brand management chief, said. “We continue to work out how to do things better and we’re working very hard to make sure the vehicles are of a high quality”. Jeep has been building the Grand Cherokee in its current guise for some time, so it’s worth noting that the manufacturer wants to continue to improve rather that wait for the new model to roll into production. “We tackle any issues that we do face, head-on”, Shaw said. Shaw is also willing to concede that playing in the premium space with the likes of BMW and Mercedes-Benz is an altogether different angle for Jeep. “That is certainly something that is new territory for the Grand Cherokee”, he said. “And those buyers have different expectations. Conquesting those brands is all part of the challenge that makes designing and building the Grand Cherokee platform fun – we’re adapting to those customer’s needs”. Lucy McLellan, director of corporate communications for Fiat Chrysler Australia, went even further on what it means to offe a premium product. “We agree that quality comes from manufacturing and engineering, but not that alone”, McLellan said. “It’s also about the customer experience, the cost of ownership, ease of assistance and servicing, access to spare parts, not to mention the cost of servicing itself”. “Our commitment to improving the ownership experience has well and truly already started”, McLellan told. “It certainly doesn’t finish here either”, McLellan said. +++

+++ The technology tie-up that has been announced between MAZDA and Toyota may offer the answer to how Japan’s fifth-largest carmaker can survive in the new era of electrification and self-driving vehicles. Mazda sells 1.5 million vehicles a year but is overshadowed both in size and innovation by Toyota, which in 2015 was the world’s largest carmaker, selling more than 10 million units, and is a pioneer of both hybrid and fuel-cell technology. Though the alliance is not backed by capital ties, industry watchers see it as a gateway for the sports car specialist to join the sprawling Toyota family, which includes Daihatsu, Hino and Subaru-maker Fuji Heavy. Last month, Suzuki said it may also explore a similar technology partnership with Toyota. Mazda says they won’t be swallowed up. “If we can make good cars through an all-Japan co-operation, why not join hands?”, a spokesman says. In fact, Toyota concedes that it has much to learn from its nimbler rival in terms of slick vehicle design and fuel-saving engines. But although te Mazda MX-5 was voted both ‘world car of the year’ and ‘world car design of the year’ (a rare double accolade), carmakers are racing to build a better hybrid or electric vehicle to comply with environmental regulations. In 2006, the Japanese carmaker took a gamble on perfecting its engine and transmission technology. Rivals marched in the opposite direction, developing cars powered by hydrogen and electricity. Now, Mazda says it builds the optimum engine that could be fitted into all types of vehicles. The new lightweight engine is part of a collection of fuel-efficient technologies that the company calls SkyActiv. With these technologies, Mazda has improved average fuel economy for its cars by about 26 percent from 2008 levels, and met emissions regulations without turning to electric vehicles or hybrids. Mazda is credited for steering away from overambitious sales targets, but its turnround could now be jeopardised by the yen’s stubborn rise. Also, a company the size of Mazda cannot compete alone in artificial intelligence and other new technologies. Apart from that, driverless vehicles will threaten the core of what Mazda believes makes its cars attractive. “Our cars are human-centric so people will be driving them”, a spokesman says. “Driving can lift spirits, relieve stress and stimulate the brain … That’s the kind of cars that make sense for Mazda to make and that’s our role”. +++

+++ TATA Motors, part of India’s Tata group, defended its strategy for producing the $1,500 Nano but shied away from commenting on the loss-making car’s future, after the conglomerate’s ousted chairman said there were emotional reasons for not shutting down production. Tata Motors’ issued the statement to the stock exchange Friday after an internal letter by ousted chairman Cyrus Mistry said the cost of Nano’s production was always higher than its 100,000 rupees ($1,497.33) price tag and the project needed to be shut down if the company wanted to remain profitable. Mistry was sacked in a boardroom coup last week with group patriarch Ratan Tata taking over the reins as interim chair of Tata Sons. A bitter public feud has since erupted between the 2 sides, raising prospects of a legal battle. The Nano’s concept received global interest for its affordable pricing but a change in its manufacturing location and the perception of a cheap car hurt production and sales, Tata Motors said in the statement. Mistry’s leaked letter, addressed to the Tata Sons directors on Oct. 25, said emotional reasons were keeping Tata Motors away from shutting down the Nano’s production. Nano sales declined more than three-fifths to 4,459 cars in the in the 6 months of the fiscal year beginning April 2016. The car maker had written off some costs associated with the Nano, it said. Tata Motors also said investments in the Nano factory could be used for making other products and that the company would focus on “growing and attractive segments of the passenger vehicle market”. The company denied Mistry’s accusation of aggressive accounting for product development expenses and said it followed standard norms which present a fair and true picture of its financial health. Tata Sons on Friday announced a new management team for the $100 billion steel-to-software group under interim chairman Ratan Tata. While Mistry has been removed as chairman of Tata Sons, he is still chairman of some of the key listed group companies such as Indian Hotels, Tata Motors, Tata Consultancy Services and Tata Steel. +++

+++ TESLA chief executive Elon Musk has boldly predicted that SolarCity will contribute a half billion dollars to the merged company’s profits in the near future. The proposed buyout has stirred plenty of controversy, prompting Tesla to launch a PR offensive and unveil a next-generation solar roof to demonstrate the natural links between the EV sector and renewable energy. Critics have argued that the deal is ill-timed, potentially serving as a distraction or draining resources as Tesla attempts to keep its important Model 3 on track for a promised late-2017 arrival. Others suggest SolarCity is simply a financial burden, with a concerning record of annual net losses. Speaking to analysts via conference call, Musk took the opportunity to fire back at the naysayers. Despite SolarCity’s recent financial history, the company is expected to bring around $1 billion in revenue next year and add $500 million in profit over the next 3 years. Musk broadly blasted some of the “big hedge funds” with a “batting average of zero” for fomenting opposition to the deal, according to quotes from the call cited by Bloomberg. The companies are counting down the final two weeks before shareholders vote on the acquisition. +++

+++ This weekend marks the 50th anniversary of the TOYOTA Corolla, one of the world’s best-selling cars. Since the first model went on sale in Japan on Nov. 5, 1966, some 44.3 million Corollas have been sold globally through the end of September, including the Corolla Fielder station wagon and other variants, the Japanese automaker says. In the late 1950s, as Japan’s economy recovered from World War Two, automakers aimed to produce an affordable car for the average family, most of whom didn’t have a vehicle. Toyota first came out with the Publica, which wasn’t very well received. In 1966, it introduced the sportier two-door Corolla with a jaw-dropping plan: to build 30,000 of them a month at a time when Toyota’s total monthly production was 50,000 vehicles. The car sold well as Japanese consumers aspired to get the “3 C’s” – color TVs, cars and coolers (airconditioners). 3 years after the launch, the Corolla became the country’s top-selling car and helped usher in an age of motorization in Japan. The man in charge of developing the original Corolla, Tatsuo Hasegawa, had designed aircraft during the war, and incorporated some aircraft aerodynamics into the new car. His concept for the Corolla was “80-plus-points” – in short, a car with a more-than-passing grade on several counts that gave customers the feel of a better-than-average product. For the first-generation Corolla, the going-the-extra-mile “add-on” was its sportiness, despite being a family car. Hasegawa gave the car a 4-speed manual transmission operated by a gearshift on the floor, instead of the more typical 3-speed, column shifter at the time. The Corolla also had a 1,100 cc engine, a bit larger than that of its rival, the Nissan Sunny. Toyota has stuck to its tradition of introducing new technologies to the masses with each remodeling of the Corolla. Now in its 11th generation in Japan, the car is made in 13 countries around the world and sold in more than 150 countries. After 33 straight years as Japan’s top-selling model, the Corolla lost the crown in Japan to rival Honda Jazz’ (Fit) in 2002. It is now also outsold by the Toyota Aqua and Prius hybrid-only models as domestic customers opt for more fuel-efficient cars. The outlook at home is bleak, with the overall car market due to shrink further along with the population. Domestic sales of the Corolla are now about a quarter of their peak of around 400,000 in 1973. But the Corolla is still a cash cow in the United States, where it is the No.2 best-selling passenger car model so far this year, behind only the Toyota Camry. +++

+++ VOLVO announced on Wednesday moves deepening cooperation with its Chinese parent Zhejiang Geely Holding Group; – a tie-up that’s shaping up to show that China can make a success of buying consumer brands. Volvo’s global chief executive Håkan Samuelsson and Geely Chairman Li Shufu said the 2 firms will soon start producing cars at a joint assembly plant in Taizhou, in eastern Zhejiang province. The plant, operated by Volvo and expected to start gradually ramping up production this quarter, will produce compact cars based on an “advanced” vehicle architecture the two companies have jointly developed in Sweden. Both Volvo and Geely are expected to produce small cars at the plant based on that Compact Modular Architecture (CMA) platform – for both domestic and export markets. Volvo is trying to create “synergies and economies of scale”, Samuelsson said in Shanghai on Wednesday, “by sharing development-intensive components: engines, transmissions, suspension parts and brakes”, and by sharing manufacturing facilities. The effort won’t “dilute” or “jeopardize” the identities of the 2 car brands, he said. On Wednesday, Volvo also unveiled 2 stretched variants of its recently launched large S90 premium sedan, including the S90 Excellence. It will build both S90 variants at its assembly plant in Daqing in northeastern China, for sale in China and abroad. Samuelsson and other Volvo officials said Volvo will make China a global production hub for the S90 and its long-wheel base variants. While some production of those cars will likely remain in Europe the company over time will produce in China a majority of those cars it sells globally. Volvo began exporting its China-made cars last year, shipping its S60 Inscription to the United States. The Taizhou plant will be Volvo’s third assembly site in China, along with Daqing and one in Chengdu in western China. The car maker also has two plants in Europe, and is building a new plant in South Carolina in the United States. Geely raised auto industry eyebrows when it bought Volvo from Ford for 1.8 billion dollar 6 years ago. Few saw any obvious synergies in marrying a premium Western marquee with a Chinese entry brand. But the 2 appear to be making it work. Cooperating on buying parts, developing technologies and boosting capacity, sales of both brands have risen. Volvo increased its third-quarter sales in both China and the United States by more than a fifth, and July-September operating profit jumped 62 percent to 2.07 billion Swedish crowns ($232.5 million). Geely sold more than half a million cars last year, up 22 percent, and sales in the first nine months of this year were already at nearly 460,000 cars. “Moving production from Sweden to China, and sharing manufacturing processes and components has been a positive for both Geely and Volvo from a cost savings perspective”, said James Chao, Asia-Pacific chief for consulting and research firm IHS Markit Automotive. “It makes sense especially as they upgrade the Geely product line-up with the new Lynk brand, as well as through tangible product improvements, which should help protect the Volvo brand from association with a lower cost brand”. Geely said this month it will use the jointly developed compact car CMA platform for a new brand called Lynk & Co, which will begin production next year for the Chinese market and start exporting to Europe and the United States in 2018. Chao at IHS said that despite the signs of progress in the partnership, the process of integrating Volvo has been slower than he expected. “So far, I’d grade it a ‘B’ “, he said. Geely insiders acknowledge that Volvo wants to keep some distance between the 2 brands, fearing that too close a manufacturing tie-up could risk diluting its premium image. And, the insiders note, there is still some disconnect as to just how premium Volvo’s premium cars should be for the Chinese market, with Geely Chairman Li said to want a more upscale model to compete with Audi, BMW and Mercedes. A Volvo spokesman said there is no disagreement on the need for a large premium sedan for Volvo. “The S90 is an area we need to move into in order to be credible in the premium sector”, the spokesman said. “Operational performance on a group level came in as expected but for automotive below expectations”, DZ Bank analyst Michael Punzet said in a note on Friday. +++

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